Q. A company with $65500 in current assets and $37000 in current liabilities pays a $1900...
Q. A company with $65500 in current assets and $37000 in current
liabilities pays a $1900 current liability. As a result of this
transaction, the current ratio and working capital will
increase and remain the same, respectively.
both decrease.
both increase.
remain the same and decrease, respectively.
Homework Answers
Solution:
Existing current ratio = 65500/ 37000 = 1.77
Existing working capital = 65500 - 37000 = $28,500
New current ratio = (65500-1900) / (37000-1900)= 1.81
New working capital = (65500-1900) - (37000-1900) = $28,500
Therefore, current ratio will increase and working capital will remain the same.
Hence first option is correct.
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